The end of the financial year is fast approaching and most people’s minds are currently fixated on tax matters such as lodging your tax returns in time and the potential tax deductions that you could claim. However, this is also the time when you should think about your superannuation. Taxes and your super are deeply intertwined so if your mind is focused on one, it should also wander onto the other and there is no better time to give these two a careful look than in the lead-up to the June 30 deadline.
Your Super at Tax Time
Apart from the tax-related matters, there is so much that you could do about your super at this time. It should be an integral part of your end of financial year (EOFY) thinking. And when it comes to this, there is always lots of potential to maximize on various tax incentives and save some money.
One option would be to optimise on both your concessional (pre-tax) and non-concessional (post-tax) super contributions. The annual contribution limits have been coming down over the years so if you don’t maximize on these early on, you are unlikely to have enough time later on to make the most of your super contributions.
Opportunity with tax deductions
If you would like to fatten your tax refund cheque, a pre-June 30 tax strategy that you can use is by claiming the tax deductions on your personal super contributions. You can claim any amount that is below the annual concessional contributions cap. In the past, this window was only open to the self-employed Aussies or employees whose employers didn’t offer a salary-sacrifice superannuation agreement but that is no longer the case.
Even as an employee, you are now allowed to top up the pre-tax contributions that have been made on your behalf by your employer. You can top this up for as long as your total super contributions including Super Guarantee, salary sacrifice contributions and personal super contributions do not exceed $25,000. You can subsequently claim a personal tax deduction on the personal super contributions made.
Inquire with your super fund
If you are planning to make a personal super contribution to your fund or funds in order to boost your super balance, inquire with your fund(s) and establish the amounts in concessional contributions that have been made by your employer(s) for the current financial year. Make sure you also check with your employer to determine if they are planning to make additional contributions for this financial year. Tally these amounts and subtract the total from the annual super contributions cap of $25,000. The amount left is what you will be eligible to claim tax deductions for as long as you make this contribution to your super fund(s). You should also have lodged a notice of intent and gotten back an acknowledgement from the fund.
Use your capital gains to top up your super fund
Making personal super contributions can also help save you money when you have made some capital gains on your investments during a financial year. If you have sold some asset in a financial year which made you a small gain, you will definitely incur a hefty tax liability when you are filing your tax returns.
By choosing to make a tax-deductible super contribution that boosts your annual contribution closer to $25,000 and then claiming a tax deduction for the contribution, you will be able to drive tax rate down to 15% from the higher marginal tax rate for your income bracket.
Watch out on the insurance contributions
Does your employer pay an insurance contribution to your super fund as part of the normal contribution or payroll cycle? It is important to remember that the insurance payments made by your employer are also factored into the $25,000 annual contribution cap. If you fail to factor it in, it will interfere with your strategy of optimising the use of your annual super caps.
Also, as your age tends towards 55 and 60, these employer insurance premiums will be quite substantial and will therefore make up a huge part of your annual balance. If you wish to maximize on your super at this stage as the June 30 deadline approaches, you might consider taking out these employer insurance premiums out of your superannuation fund. By having them in your personal names, you will have ensured that the premiums won’t take a huge chunk of your superannuation retirement savings.
Move some money into your spouse’s name
The annual superannuation contribution limits have been revised downwards to $25,000 for concessional contributions and $100,000 for non-concessional contributions. The rules will change along the way and you also need to start evening out those balances so you might consider moving out some of the money into your spouse’s name as this will entitle you to a huge deduction in the future.
Carry forward unused caps of concessional contributions
To get a huge deduction, you can make use of the provision that allows you to carry forward unused caps for concessional contributions for up to 5 years. This will take effect from July 2018. So in the meantime, you might just focus on paying the 9.5% Super Guarantee while waiting for a financial windfall such as a property sale within the next five years. The proceeds from property sales can be used to offset the capital gains incurred on your property. This can be ideal for someone who is planning to sell a piece of property before retirement.
Take advantage of the spouse superannuation tax offset
This is another effective superannuation strategy that you can deploy during tax time. One of the major superannuation changes for 2017/2018 has been the raising of the income threshold for spouse superannuation tax offset from the range of $10,800 (and $13,800) to the income range of $37,000 and $40,000. This tax offset allows a contribution spouse to claim an 18% tax offset for a maximum of $540 for contributions made to their spouse’s super account. By splitting your contributions with your partner and ensuring both of you have roughly equal amounts in super, you will not only be maximizing on your annual contribution caps but you can also claim up to a maximum of $540 in tax offsets.